PROTECT YOURSELF!

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
IRS Expands ID Protection Program
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The IRS is expanding a pilot program that uses Identity Protection Personal Information Numbers (IP PINs) to provide an extra layer of security for taxpayers. The program can be used by residents of the District of Columbia, Florida, Georgia, California, Delaware, Illinois, Maryland, Michigan, Nevada and Rhode Island. Appropriately, these states have a high incidence of ID theft.

IP PIN program details

Unless you are a victim of IRS identity theft, participation in this program is voluntary. You can opt-in to receive an IP PIN if you live in one of the included states and you filed a tax return last year.

So why opt-in? The IRS uses the IP PIN to better verify the taxpayer’s identity. It can prevent clever hackers from using your Social Security number to file fraudulent returns or access returns you’ve already filed.

Keep in mind that if you choose to get an IP PIN, you’ll need to use an IP PIN for all future filings. You can file your return as you normally would if you decide not to participate in the pilot program.

Getting your IP PIN

You can use special IRS tools to obtain an IP PIN and verify your identity through a two-factor authentication process. Go to the Get an IP PIN page on the IRS website to get started.

A new IP PIN is generated for every filing season. It may be retrieved mid-January by logging into your account.

Have you experienced ID theft? The IRS will continue to issue new IP PINs to taxpayers who have already been victimized by tax-related identity theft.

It’s expected that the IRS will open up the program to taxpayers nationwide once it works out all the kinks. Look forward to more developments.

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Back to School

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Tax Breaks for Adult Students
These benefits are not just for kids!
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Kids aren’t the only ones heading back to school this fall. Many adults are also taking courses to pursue a new career or improve their current job skills. Fortunately, adult students may qualify for several tax breaks. Here are four possible options:

  1. American Opportunity Tax Credit (AOTC). The AOTC is one of two credits for qualifying higher education expenses. The maximum credit of $2,500 is phased out based on income. To qualify, you must be enrolled at least half-time and not have finished four years of higher education. The credit does not rule out your eligibility because of age.
  2. Lifetime Learning Credit. If you can’t claim the AOTC, you may be able to use the lifetime learning credit (because you can generally only claim one credit in a tax year). The maximum lifetime learning credit is $2,000, as opposed to $2,500 for the AOTC, and there is an income phaseout that occurs at lower income levels than the AOTC. But you don’t have to be enrolled half-time and the credit isn’t restricted to four years of study. It’s even available if you take just one class.

  3. Student loan interest deduction. Do you need to borrow money to pay for schooling? If you qualify, you can deduct up to $2,500 of your annual student loan interest on your tax return. The deduction is subject to a phaseout based on income. Keep in mind that to claim this deduction, you need to be the one who is repaying the loan.
  4. Educational assistance plans. Perhaps the best way to go back to school is to have your employer pay for it. With a written educational assistance plan that meets all the tax law requirements, the first $5,250 of education expenses paid by your employer is tax-free to employees and deductible by the employer. The coursework doesn’t even have to be job-related.

Education tax breaks aren’t just for kids. Each of these educational tax saving opportunities is filled with additional rules and requirements. Please call for a review of your situation.

 

Check and Save

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Lower This Year’s Tax Obligation
Action to take now!
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Now is a good time to assess your current situation and address those lingering tax moves that may improve your tax picture for 2019. Here are five things to consider:

1. Check on your withholdings. Review your taxable income and the amount of tax you’ve paid to Uncle Sam so far this year. How do the numbers compare to last year? Based on your analysis, you may have to adjust your paycheck withholdings or make quarterly estimated tax payments during the balance of the year to avoid underpayment penalties or a surprising tax bill.

2. Build up your retirement accounts. Don’t neglect your retirement savings during the remainder of the year. In fact, setting aside more money for retirement can lower this year’s tax bill. For instance, if you have a 401(k) plan at work, you can defer up to $19,000 of salary in 2019, plus an extra $6,000 if you’re age 50 or older.

3. Identify potential taxable events. It’s easy to overlook one-time events that will have an impact on your 2019 tax liability. For instance, if you win a prize at a church raffle, the prize is generally taxable to you. Perhaps you changed jobs, lost a child as a dependent, or got married. Each of these events can create a change in your tax obligation. Review your records now to avoid any unpleasant tax surprises later.

4. Consider business property needs. If you acquire business property, you can often choose to write off the cost in the first year the property is placed in service under the latest tax laws. If it makes sense, consider combining the benefits of the Section 179 expensing deduction, up to a maximum of $1 million (indexed for inflation), with 100% bonus depreciation for both new and used property.

5. Account for gig taxes. Finally, workers in the gig economy (like Uber and Lyft drivers) should understand the basic tax rules. Generally, income from such jobs is fully taxable, but you may be entitled to offsetting deductions. Essentially, you’re treated like a self-employed individual. Estimated quarterly tax payments are often required for these workers.

Should you wish a review of your situation, call now. It’s better to be prepared than surprised when it comes to your tax obligation.

It is Time to Pay

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Reminder: Third Quarter Estimated Taxes Due
Now is the time to make your estimated tax payment
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If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third quarter due date is now here.

Due date: Monday, September 16th, 2019

Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

  • Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year.
  • W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
  • Self-employed need to account for FICA taxes. Remember to account for your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
  • Don’t forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you’re required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

* If your income is over $150,000 ($75,000 if married filing separate), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.

Give A Gift

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Leveraging Gift Rules to Your Advantage
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As you or family members approach retirement years, it is important to have a basic understanding of the IRS gift giving rules. With this understanding, there are opportunities to leverage this tax law without creating a tax problem.

The rules

  • You may give up to $15,000 to any individual (donee) in 2019 and avoid any gift tax filing requirements.
  • If married you and your spouse may transfer up to $30,000 per donee.
  • If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $155,000.
  • Gifts in excess of this annual amount trigger the need to file a gift tax form with your individual tax return. The excess gift amounts are then added to your estate for potential estate taxation.
  • The estate tax currently has a maximum rate of 40% and the donor of the gift (or their estate) is responsible for paying the tax.

Using the rules to your advantage

Remember, you can transfer up to $15,000 ($30,000 if married) to anyone you wish each year tax-free. Additionally, most states also adhere to this federal law. So if you wish to move assets to loved ones without the burden of future taxation, consider the following ideas.

  • Make periodic gifts. Remember the gift-giving limit is per calendar year. To take full advantage of this tax-free transfer, consider starting now and make periodic payments. Every year you miss out on this annual limit reduces the amount a couple can transfer tax-free to each individual donee by up to $30,000 per year.
  • Fund college saving. Consider donating money into 529 College Saving plans for children and grandchildren. This can be done with automated deposits into the account. The account could be established by you or your grandchild’s parent.
  • Pay medical and education bills direct. If you are concerned about exceeding the annual limit for gifts to a single person, consider paying bills directly. Examples of this strategy might be paying medical bills directly to a hospital or directly paying college bills for a loved one.
  • Donate property. Gifts can include property as well as cash. You can donate investments or other physical property. If you do this, document the fair market value of the property when you transfer it. The IRS requires this documentation to ensure the value of the property transferred is consistently valued by you and the person receiving the gift.
  • Help build a down payment. Often children burdened with college debt cannot afford to save the down payment required to own their first home. You can aid in this by helping build a down payment through gift transfers.
  • Leave a cushion. Remember the annual limit. If you provide a gift for the maximum allowable to an individual, you may not provide any other gifts to this person during the year or the event would be deemed excess gift giving and require filing a gift tax form.

Keep it in perspective

Understanding and leveraging the annual gift tax rules can create tremendous tax savings. But this strategy should be done in conjunction with understanding your personal financial needs. Providing gifts of funds that you might later need for your own retirement can be problematic. It is best to review your gift plans prior to taking action.

It’s The 4th Quarter…

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
New Baby? Tax Tips Everyone Should Know
Especially parents, grandparents and relatives
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For new parents, information is coming from every direction – feeding times, car seats, sleep schedules, strollers, child development and of course … taxes. What most new parents do not consider is that this little bundle of joy just complicated their tax situation!

Whether you are a new parent, grandparent, or know someone who is expecting, here are some tax tips to consider:

  • Initiate a 529 education savings plan. 529 education savings plans are a great way to kick off the baby’s savings for the future. These plans offer low-cost investments that grow tax-free as long as the funds are used to pay for eligible education expenses (including up to $10,000 for elementary and secondary tuition). States administer these plans, but that doesn’t mean you are stuck with the plan available in your home state. Feel free to shop around for a plan that works for you. Starting to save early, even a little bit, maximizes the amount of tax-free compound interest you can earn in the 18+ years you have before going to college.
    Bonus tip for family and friends: Anyone can contribute up to $15,000 per year to the plan for each child! In addition, there is a special provision for 529 plans that allows five years worth of gifts ($75,000) to be contributed at once — a great estate-planning strategy for grandparents.
  • Update Form W-4. Once parent(s) return to work, year-to-date withholding and current allowances on the Form W-4 need a review. Remember the birth of a child brings new tax breaks including a $2,000 Child Tax Credit and Child and Dependent Care Credit for child-care expenses. These credits can be taken advantage of now by lowering tax withholdings and increasing take-home pay to help cover diapers and other needs that come with a new baby.
  • Track medical expenses. Having a baby is expensive. According to Business Insider, the average cost to deliver a baby (without complications) is over $10,000. That doesn’t include the extra doctor visits and other medical expenses that might accumulate. There are ways to pay for medical expenses with pretax dollars or take tax deductions, but there needs to be a plan and receipts need to be saved. Many employers offer tax-advantaged accounts such as a Health Savings Account (HSA) or Flexible Spending Account (FSA). If not, an individual account might be available, depending on your insurance, or itemized deductions may be taken.

Given the tax considerations of having a new child in the family, review this information and forward this tip to anyone expecting a new addition. Bringing home a new baby is one of the great joys in life. Taking full advantage of the tax benefits that come with being a new parent make it even better. Please call if you have any questions.

Category: Deductions

Published: 12/28/2018

 

Today Is THE Day

 

Your Weekly Tax Tip

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Phone: 323.292.5407
Last-Minute Tax Deductions
There is still time to lower your tax bill!
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There’s no time left to procrastinate! Now is the time to make last-minute tax moves to save you some money. Here are ideas to consider:

  • Sell loser stocks. Review your portfolio for stocks, mutual funds and other investments that are sitting in a loss position. If the investments are looking like they won’t be rebounding anytime soon, sell them and take advantage of the annual capital loss limit. Losses will first net against your capital gains, but the IRS will allow you to deduct up to $3,000 in excess losses against your ordinary income. Consider selling loser investments held less than one year first as they will offset short-term gains that are taxed at higher ordinary income tax rates.
  • Prepay your mortgage. As an individual taxpayer, deductions are allowed depending on when you pay them. You can take advantage of this at the end of the year. If you are planning to itemize your deductions, make your January house payment in December and get credit for the mortgage interest deduction this year. That’s 13 months of interest in one year just by making the payment a few days early.
  • Donate household items. You might have tax deductions hiding in your garage, closets or basement! Donations of household items and clothing are a great way to boost your charitable giving deduction. There are a few things to consider. The donation needs to be made to an eligible charity (called a 501(c)(3) organization). Documentation is required to substantiate your donation, so take a picture and get a receipt for all donations. All donations with a fair market value of $5,000 or more need a qualified appraisal.
  • Fund your 401(k). All contributions to a 401(k) deferral account will decrease your taxable income. So see if your employer will allow you to increase your 401(k) contributions. The contribution limit for 2018 is $18,500 or $24,500 if you are 50 or older ($19,000 or $25,000 if you are 50 or older in 2019). Even if a late contribution change is not allowed, now is a great time to set up next year’s 401(k) contributions.
  • Make a donation from your IRA. If you are older than 70½ you can make a charitable distribution of up to $100,000 directly from your IRA to a qualified charity. The distribution is excluded from taxable income, so this is a great way to donate and take advantage of the higher standard deduction. Even better, this type of distribution qualifies as a required minimum distribution.

With the increase in standard deductions, year-end moves need to be analyzed more closely than in past years.

Category: Planning

Published: 12/14/2018